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Multilateralism versus Regionalism!?

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  • Bernhard Herz
  • Marco Wagner

Abstract

The well-known question whether regional trade agreements (RTAs) and the multilateral trading system (MTS) are "strangers, friends, or foes" (Bhagwati and Panagariya, 1996) has gained new importance with the widespread proliferation of RTAs in recent years. Based on an extensive data set which covers most of world trade over the past 60 years and about 240 regional trade agreements, we analyze the relationship between RTAs and the MTS by combining the gravity model framework with vector auto-regression analysis. Impulse-response-functions robustly suggest that multilateral trade liberalization responds in a significantly positive way to regional trade liberalization. We also find robust evidence that RTA liberalization Granger-causes GATT/WTO liberalization. Thus, our results indicate that RTAs do not undermine the MTS but serve as building blocs to multilateral trade liberalization.

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Bibliographic Info

Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c015_043.

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Length: 38 pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:deg:conpap:c015_043

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Keywords: Regionalism; multilateralism; trade agreement; gravity model;

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  1. Bergstrand, Jeffrey H, 1985. "The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 474-81, August.
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  14. Richard Pomfret, 2005. "Regional Trade Agreements," School of Economics Working Papers 2005-15, University of Adelaide, School of Economics.
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